US:
- The Fed left interest rates unchanged as expected.
- The macroeconomic projections were revised higher as the economy showed much stronger resilience than expected and the Dot Plot showed that the majority of members still expects another rate hike by the end of the year with less rate cuts in 2024.
- Fed Chair Powell reaffirmed their data dependency but added that they will proceed carefully as they are trying to find the optimal level of rates. Powell also added that the soft landing is not the base case at the moment, although they are aiming for it.
- The latest US CPI came in line with expectations, so the market’s pricing remained roughly the same.
- The labour market displayed signs of softening although it remains fairly solid as seen also last week with the strong beat in Jobless Claims.
- The market doesn’t expect the Fed to hike again at the moment.
EU:
- The ECB hiked by 25 bps at the last meeting and added a line in the statement that hinted to the end of the tightening cycle.
- President Lagarde didn’t push back against the idea of them having reached already the terminal rate and highlighted the slowdown in Eurozone economy.
- Inflation measures did soften a bit lately but remain uncomfortably high.
- The labour market remains very tight with the unemployment rate hovering at record low levels.
- Overall, the economic data lately has been showing signs of fast deterioration in the economy pointing to a possible recession in the near future.
- The majority of ECB members is leaning towards keeping rates higher for longer now.
- The market doesn’t expect the ECB to hike anymore.
EURUSD Technical Analysis – Daily Timeframe
On the daily chart, we can see that the EURUSD pair remains in a strong downtrend with the price printing lower lows and lower highs and the moving averages crossed to the downside acting as dynamic resistance. The pair last week broke below the key swing level at 1.0635 opening the door for a fall into the 1.05 handle.
EURUSD Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that we have a divergence with the MACD which is generally a sign of weakening momentum often followed by pullbacks or reversals. In this case, we are likely to see a pullback into the previous support now turned resistance which might turn into a classic “break and retest” pattern. We can also see that we have the confluence with the 38.2% Fibonacci retracement level and the red 21 moving average. This is where the sellers are likely to pile in with a defined risk above the resistance to target the 1.05 handle.
EURUSD Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see more closely the bearish setup with the downward trendline adding further confluence to the resistance zone around the 1.0615 level. The buyers will want to see the price breaking above the resistance zone to invalidate the bearish setup and position for a rally into the major trendline around the 1.0720 level.
Upcoming Events
Today we will see the latest US Consumer Confidence report which surprised to the downside the last time and weighed on the USD in the short term as Treasury yields fell. On Thursday, we will have another US Jobless Claims data which keeps on showing strength in the labour market maintaining the hawkish pricing in interest rates expectations. Finally, on Friday, we will get the latest Eurozone CPI data and the US PCE report.
